Euro to US Dollar Exchange Rate Forecast to Fluctuate before ECB Announcement

On Friday the Euro rallied to its strongest level against the US Dollar for two months as the odds of the European Central Bank introducing additional easing measures on Thursday declined.

Slightly better-than-forecast inflation figures for the Eurozone reduced the currency bloc’s downside risks and helped the Euro surge against the majority of its most traded currency counterparts.

The Euro also advanced on the Pound despite the British asset garnering support from a comparatively optimistic economic outlook for the UK.

The Euro largely held gains into the North American session, even as the US University of Michigan Confidence Index was shown to have advanced from 81.2 to 81.6 in February.

The appeal of the US Dollar was moderately dented by the news that the US economy expanded at an annual pace of 2.4 per cent in the final quarter of last year, down from the 3.2 per cent expansion recorded in the previous three months.

In the wake of the Euro’s advance one senior currency strategist noted; ‘The market tends to expect weak CPI data, now it has less of a reason to do what they’ve done in the past with a short position going into the ECB meeting. Europe just doesn’t look that bad on a relative basis. When you put it altogether, there’s a less negative inflation outlook.’

However, Thursday’s German inflation data did disappoint expectations and many investors are still betting that the ECB will opt to cut interest rates beyond their current record low of 0.25 per cent in an attempt to bolster the Eurozone’s still tenuous economic recovery.

The ECB decision will be taking place on March 6th and the Euro/US Dollar exchange rate is likely to fluctuate in the days preceding it.

Several other influential Eurozone reports will also have an impact on the Euro’s exchange rate, including German/Eurozone manufacturing and services PMI, Eurozone retail sales figures for January, Eurozone GDP and German industrial production data.

Meanwhile, the US non-farm payrolls report (out on Friday) may well trigger widespread market movement.

Last week Federal Reserve Chairwoman Janet Yellen asserted that the Fed would likely continue with the slow and steady tapering of stimulus.

However, she also acknowledged that the US labour market remains weak.

If the payrolls report for February disappoints expectations the Fed may have to revise its stance and the ‘Greenback’ could decline.

Economists have forecast that the US economy added 150,000 positions last month and that the unemployment rate in the world’s largest economy held at 6.6 per cent.